Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission file number 333-170016
Sound Kitchen Entertainment Group, Inc.
(Exact name of registrant as specified in its charter)
Florida |
| 90-0599877 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification Number) |
7076 Spyglass Avenue, Parkland, Florida |
| 33076 |
(Address of principal executive offices) |
| (Zip Code) |
(954) 599-3672
(Issuer’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | o | Accelerated filer | o |
| Non-accelerated filer | o | Smaller reporting company | þ |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
| Outstanding at December 15, 2011 |
Common Stock, $0.001 |
| 31,500,000 shares |
SOUND KITCHEN ENTERTAINMENT GROUP, INC.
TABLE OF CONTENTS
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Part I Financial Information | 3 |
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Item 1. Financial Statements | 3 |
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Condensed Balance Sheets at November 30, 2011 (unaudited) and August 31, 2011 (audited) | 3 |
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Condensed Statements of Operations for the three months ended November 30, 2011 and the cumulative period from June 2, 2008 (inception) through November 30, 2011 | 4 |
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Condensed Statements of Cash Flows at November 30, 2011 | 5 |
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Notes to Condensed Financial Statements | 6-10 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 11-14 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk. | 14 |
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Item 4T. Controls and Procedures. | 14 |
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Part II Other Information | 15 |
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Item 1. Legal Proceeding. | 15 |
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Item 1A. Risk Factors. | 15 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | 15 |
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Item 3. Defaults Upon Senior Securities. | 15 |
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Item 4. (Removed and Reserved). | 15 |
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Item 5. Other Information. | 15 |
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Item 6. Exhibits. | 15 |
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Signatures | 15 |
- 2 -
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
SOUND KITCHEN ENTERTAINMENT GROUP,INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
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| Unaudited |
| Audited |
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| November 30, 2011 |
| August 31, 2011 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and equivalents |
| $ | 100 |
| $ | 100 |
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Total Current Assets |
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| 100 |
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| 100 |
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OTHER ASSETS: |
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Intellectual assets, net |
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| 262,500 |
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| 262,500 |
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Security Deposits |
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| 5,600 |
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| — |
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Total Assets |
| $ | 268,200 |
| $ | 262,600 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY) |
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CURRENT LIABILITIES: |
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Accounts payable |
| $ | — |
| $ | — |
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Accrued Expenses |
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| 5,123 |
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| 10,000 |
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Loans from related parties |
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| 24,177 |
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| 400 |
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Total Current Liabilities |
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| 29,300 |
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| 10,400 |
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LONG TERM LIABILITIES |
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Note Payable |
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| — |
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| — |
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Total Long Term Liabilities |
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| — |
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| — |
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Total Liabilities |
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| 29,300 |
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| 10,400 |
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STOCKHOLDERS’ EQUITY (DEFICIT): |
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Common stock , par value $.001; 100,000,000 shares authorized; |
| $ | 31,500 |
| $ | 31,500 |
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Additional paid in capital |
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| 646,000 |
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| 646,000 |
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Deficit accumulated during the development stage |
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| (438,600 | ) |
| (425,300 | ) |
Total Stockholders’ Equity |
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| 238,900 |
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| 252,200 |
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Total Liabilities and Stockholders’ Equity |
| $ | 268,200 |
| $ | 262,600 |
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The accompanying notes are an integral part of these statements.
- 3 -
SOUND KITCHEN ENTERTAINMENT GROUP,INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
For the Period June 2, 2008 (inception) through November 30, 2011
(Unaudited)
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| Cumulative |
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| For the three |
| For the three |
| from June 2, 2008 |
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| months ended |
| months ended |
| (inception) through |
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| November 30, 2011 |
| November 30, 2010 |
| November 30, 2011 |
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Net Sales |
| $ | — |
| $ | — |
| $ | — |
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Cost of Sales |
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| — |
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| — |
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| — |
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Gross Profit |
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| — |
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| — |
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| — |
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Operating Expenses: |
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Legal and Accounting |
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| 6,500 |
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| 2,100 |
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| 25,900 |
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Amortization |
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| — |
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| — |
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| — |
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General and Administrative |
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| 2,800 |
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| 1,500 |
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| 11,200 |
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Office Lease Expense |
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| 4,000 |
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| — |
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| 4,000 |
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Consulting |
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| — |
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| — |
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| 397,500 |
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Total Operating Expenses |
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| 13,300 |
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| 3,600 |
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| 438,600 |
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Operating Loss |
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| (13,300 | ) |
| (3,600 | ) |
| (438,600 | ) |
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Other income/expenses: |
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Interest expense |
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| — |
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| — |
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| — |
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Total Other Income/ (Expenses) |
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| — |
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| — |
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Net (loss) before Income Taxes |
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| (13,300 | ) |
| (3,600 | ) |
| (438,600 | ) |
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Provision for Income Taxes |
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| — |
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| — |
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| — |
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Net (loss) |
| $ | (13,300 | ) | $ | (3,600 | ) | $ | (438,600 | ) |
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Basic and diluted net loss per common share |
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| ** |
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| ** |
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Weighted average number of common shares outstanding |
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| 31,500,000 |
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| 5,500,000 |
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** - Less than $0.01 per share
The accompanying notes are an integral part of these statements.
- 4 -
SOUND KITCHEN ENTERTAINMENT GROUP,INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
For the Period June 2, 2008 (inception) through November 30, 2011
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| Cumulative |
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| For the three |
| For the three |
| from June 2, 2008 |
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| months ended |
| months ended |
| (inception) through |
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| November 30, 2011 |
| November 30, 2010 |
| November 30, 2011 |
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OPERATING ACTIVITIES: |
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Net loss |
| $ | (13,300 | ) | $ | (3,600 | ) | $ | (438,600 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Increase in amortization |
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| — |
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| — |
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| — |
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Issuance of common stock for services |
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| — |
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| — |
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| 397,500 |
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Issuance of common stock - shareholder note payable |
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| — |
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| — |
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| 252,500 |
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Changes in operating assets and liabilities: |
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(Increase) in Security Deposit |
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| (5,600 | ) |
| — |
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| (5,600 | ) |
Increase/(Decrease) in accounts payable and accrued expenses |
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| (4,877 | ) |
| (4,100 | ) |
| 5,123 |
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Net cash used in operating activities |
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| (23,777 | ) |
| (7,700 | ) |
| 210,923 |
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FINANCING ACTIVITIES: |
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Increase in due to related parties |
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| 23,777 |
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| 2,800 |
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| 24,177 |
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Increase in notes payable |
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| — |
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| — |
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| (240,000 | ) |
Proceeds from issuance of common stock |
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| — |
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| — |
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| 5,000 |
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Net cash provided by (used in) financing activities |
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| 23,777 |
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| 2,800 |
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| (210,823 | ) |
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NET INCREASE (DECREASE) IN CASH |
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| — |
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| (4,900 | ) |
| 100 |
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CASH BEGINNING BALANCE |
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| 100 |
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| 5,000 |
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| — |
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CASH ENDING BALANCE |
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| 100 |
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| 100 |
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| 100 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Taxes paid |
| $ | — |
| $ | — |
| $ | — |
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Interest paid |
| $ | — |
| $ | — |
| $ | — |
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NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING AND FINANCING ACTIVITIES: |
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Issuance of common stock for acquisition of intellectual property |
| $ | — |
| $ | — |
| $ | 22,500 |
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Issuance of notes payable for acquisition of intellectual property |
| $ | — |
| $ | — |
| $ | 240,000 |
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The accompanying notes are an integral part of these statements.
- 5 -
SOUND KITCHEN ENTERTAINMENT GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Sound Kitchen Entertainment Group, Inc. (“Company”) is a development stage company commencing development operations in April, 2010 and has incurred losses since inception totaling $438,600. The Company was incorporated on June 2, 2008 in the State of Florida and established a fiscal year end of August 31st. The Company is a development stage company and is in the entertainment business presently focusing on children’s music and entertainment management and development.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements present the balance sheet, statements of operations, stockholders’ equity and cash flows of the Company. These financial statements are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States.
Development Stage Company
The Company has not earned any revenue from operations. Accordingly, the Company’s activities have been accounted for as those of a “Development Stage Enterprise” as set forth in ASC Topic 915. Among the disclosures required by ASC 915 are that the Company’s financial statements be identified as those of a development stage company, and that the statements of operations, stockholders’ equity/(deficit) and cash flows disclose activity since the date of the Company’s inception.
Use of Estimates and Assumptions
Preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
Intellectual Property
The Company, on July 31, 2010, has acquired intellectual property consisting of thirty-five (35) children’s songs. The intellectual property acquired included all rights, title and interest and therefore the Company has title of one hundred percent (100%) ownership to the thirty-five (35) children’s songs.
The Company has capitalized costs of the acquired intellectual properties consisting of $262,500 including thirty-five (35) individual children’s songs at November 30, 2011 and 2010. The Company begins amortizing intellectual property costs, using the straight-line method over the estimated useful life of 3 years, once it is put into service. At November 30, 2011, the intellectual properties have not been put into service.
Fair Value
In accordance with the requirements of ASC Topic 820, the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities approximate their carrying value due to the short-term maturity of the instruments.
- 6 -
SOUND KITCHEN ENTERTAINMENT GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Income Taxes
The Company follows the liability method of accounting for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.
Revenue and Cost Recognition
The Company has no current source of revenue. The Company recognizes revenue based on Account Standards Codification (“ASC”) 605 “Revenue Recognition” which contains Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements’ and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, shipment has occurred, price is fixed or determinable and collectability of the resulting receivable is reasonably assured. Revenues transacted from on-line platforms are recognized at the point of sale.
The Cost of Sales includes any labor cost and the amortization of intellectual property.
Advertising, Consulting Services and Marketing
The company expenses advertising, consulting services and marketing as incurred. The company has had advertising, consulting services and marketing expenses of $397,500 from inception (June 2, 2008) through November 30, 2011.
Property
The Company entered into a three (3) year lease agreement commencing October 1, 2011 and expenses the cost as incurred.
Net Loss per Share
Basic loss per share includes no dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period. Dilutive loss per share reflects the potential dilution of securities that could share in the losses of the Company. Because the Company does not have any potentially dilutive securities, the accompanying presentation is only of basic loss per share.
Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance with ASC Topic 830, “Foreign Currency Translation”, foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Non-monetary assets and liabilities are translated at exchange rates prevailing at the transaction date. Revenue and expenses are translated at average rates of exchange during the periods presented. Related translation adjustments are reported as a separate component of stockholder’s equity (deficit), whereas gains or losses resulting from foreign currency transactions are included in results of operations.
Stock-based Compensation
The Company has not adopted a stock option plan and has not granted any stock options. Accordingly, no stock-based compensation has been recorded to date.
- 7 -
SOUND KITCHEN ENTERTAINMENT GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Share Based Expenses
In accordance with ASC Topic 230, this statement requires a public entity to expense the cost of employee services received in exchange for an award of equity instruments. This statement also provides guidance on valuing and expensing these awards, as well as disclosure requirements of these equity arrangements. The Company adopted ASC Topic 230 upon creation of the company and expenses share based costs in the period incurred.
Related Parties
Related parties, which can be a corporation, individual, investor or another entity are considered to be related if the party has the ability, directly or indirectly, to control the other party or exercise significant influence over the Company in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence. The Company has these relationships.
Recent Accounting Pronouncements
The Company has evaluated all the recent accounting pronouncements through November 30, 2011 and believes that none of them, including those not yet effective, will have a material effect on the financial position or results of operations of the Company.
NOTE 3 – GOING CONCERN
The Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company does not have material assets, nor does it have operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going concern. The Company has a deficit accumulated since inception (June 2, 2008) through November 30, 2011; of ($438,600). The Company will be dependent upon the raising of additional capital through placement of our common stock in order to implement its business plan. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern. The Company has funded its initial operations, from inception to November 30, 2011, by way of issuing common shares and advances from related parties. As of November 30, 2011, the Company had issued 31,500,000 common shares, for a total of $677,500. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with ASC Topic 825 and 820 the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities approximate their carrying value due to the short-term maturity of the instruments.
NOTE 5 – CAPITAL STOCK
In August, 2011, the company filed, amended and restated Articles of Incorporation with the Secretary of State of Florida which:
| · | changed the name of the corporation to Sound Kitchen Entertainment Group, Inc. |
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| · | increased the number of authorized shares of common stock from 100,000,000 shares to 500,000,000 shares and fixed a par value of $0.001 per share, |
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| · | authorized a class of 10,000,000 shares of blank check preferred stock, par value $0.001 per share, and |
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| · | included indemnification provisions customary under Florida law, as well as election not to be governed by the provisions of the Florida Business Corporation Act governing affiliated transactions and an election to be governed by the provisions related to control share acquisitions. |
- 8 -
SOUND KITCHEN ENTERTAINMENT GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
On July 30, 2010, the then sole officer and director of the Company purchased 1,000,000 shares of the common stock in the Company at $0.005 per share for $5,000.
On July 31, 2010, eight (8) individuals (including four (4) minor aged children) purchased 4,500,000 shares of the common stock in the Company at $0.005 per share for $22,500. These 4,500,000 common shares were issued as consideration for the deposit of $22,500 on the agreement to purchase intellectual properties.
On April 30, 2011, the Company issued 500,000 shares of the common stock in the Company at $0.025 per share for $12,500 as payment of debt to related parties.
On July 31, 2011, the Company issued 1,200,000 shares of the common stock in the Company at $0.025 per share for $30,000 as payment of liabilities for consulting services rendered.
On August 26, 2011, the Company issued 14,700,000 shares of the common stock in the Company at $0.025 per share for $367,500 as payment of liabilities for consulting services rendered.
On August 26, 2011, the Company issued 9,600,000 shares of the common stock in the Company at $0.025 per share for $240,000 as payment of the liability for the company’s children’s library.
As of November 30, 2011 and 2010, the Company has not granted any stock options and has not recorded any stock-based compensation.
In January, 2011, the company’s filing of Form S-1 with the Securities and Exchange Commission to sell a maximum of 1,000,000 common shares at $0.025 per share to raise funding of $25,000 became effective. At November 30, 2011, the Company has not sold any shares and there is no assurance that these common shares will be sold.
NOTE 6 – INCOME TAXES
We did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because we have experienced operating losses since inception. In accordance with ASC Topic 740 – Accounting for Income Tax and ASC Topic 605 - Accounting for Uncertainty in Income Taxes, when it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward period.
The components of the Company’s deferred tax asset as of November 30, 2011 is as follows:
| November 30, 2011 |
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Net operating loss carry forward | $ | 438,600 |
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Times Tax at Statutory rate |
| 35 |
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Deferred Tax Asset |
| 153,510 |
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Valuation allowance |
| (153,510 | ) |
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Net deferred tax asset | $ | 0 |
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The net federal operating loss carry forward will expire between 2028 and 2030. This carry forward may be limited upon the consummation of a business combination under IRC Section 381.
- 9 -
SOUND KITCHEN ENTERTAINMENT GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 – RELATED PARTY TRANSACTIONS
During the period from June 2, 2008 (inception) through August 31, 2010 the former sole officer and director paid incorporation costs of $684 on behalf of the Company. Additionally, other affiliates and related parties have made advances from time to time and at November 30, 2011 and August 31, 2011, the amounts were $24,177 and $400 respectively. These were classified as loans from related parties. All advances and loans are payable on demand and without interest.
Limited office space and services are provided without charge by a related party which is considered immaterial for financial presentation. The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts.
NOTE 8 – NOTE PAYABLE
On July 31, 2010, the company acquired intellectual property for a total cost of $262,500. At closing, the company executed a promissory note in the amount of $240,000 having the following salient terms and conditions:
| a) | The intellectual property secures the promissory note. |
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| b) | There is no stated interest rate, but interest is calculated as cash flow is receive by the company from any/all sources at $0.075 per song download and $0.125 per song from any/all sources including, but not limited to, compact disc (CD). |
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| c) | There are no stated period payments of principle and the promissory note is due in its entirety July 31, 2015. |
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| d) | The promissory note is executed in its entirety to Tammi Shnider as Trustee representing a total of eight (8) individuals (including four (4) minor aged children). Tammi Shnider is a related party. |
On August 26, 2011, this Note was paid in full with the issuance of 9,600,000 common shares valued at $0.025 per common share.
NOTE 9 – OFFICE LEASE OBLIGATIONS
On October 1, 2011, the Company has entered into an operating lease agreement for its warehouse and corporate offices located in Franklin, Tennessee consisting of approximately 1,900 square feet. The current lease term expiration date is September 30, 2014
Future minimum annual payment required under this operating lease at November 30, 2011 is as follows:
2012 |
| $ | 33,744 |
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2013 |
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| 35,431 |
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2014 |
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| 31,003 |
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| $ | 100,178 |
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Rent expense plus common area maintenance for the quarter ended November 30, 2011 was $5,624.
NOTE 10 – SUBSEQUENT EVENTS
We have evaluated events and transactions that occurred subsequent to November 30, 2011 through December 15, 2011, the date the financial statements were issued, for potential recognition or disclosure in the accompanying financial statements. Other than the disclosures above, we did not identify any events or transactions that should be recognized or disclosed in the accompanying financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended August 31, 2011 filed on October 7, 2011 with the Securities and Exchange Commission and are hereby referenced.
The statements in this report include forward-looking statements. These forward-looking statements are based on our management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. You should not rely upon these forward-looking statements as predictions of future events because we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify a forward-looking statement by the use of the forward-terminology, including words such as “may”, “will”, “believes”, “anticipates”, “estimates”, “expects”, “continues”, “should”, “seeks”, “intends”, “plans”, and/or words of similar import, or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. These forward-looking statements relate to, among other things: our sales, results of operations and anticipated cash flows; capital expenditures; depreciation and amortization expenses; sales, general and administrative expenses; our ability to maintain and develop relationship with our existing and potential future customers; and, our ability to maintain a level of investment that is required to remain competitive. Many factors could cause our actual results to differ materially from those projected in these forward-looking statements, including, but not limited to: variability of our revenues and financial performance; risks associated with technological changes; the acceptance of our products in the marketplace by existing and potential customers; disruption of operations or increases in expenses due to our involvement with litigation or caused by civil or political unrest or other catastrophic events; general economic conditions, government mandates and conditions in the gaming/entertainment industry in particular; and, the continued employment of our key personnel and other risks associated with competition.
For a discussion of the factors that could cause actual results to differ materially from the forward-looking statements see the “Liquidity and Capital Resources” section under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this item of this report and the other risks and uncertainties that are set forth elsewhere in this report or detailed in our other Securities and Exchange Commission reports and filings. We believe it is important to communicate our expectations. However, our management disclaims any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a development stage company incorporated in the state of Florida in June, 2008. The Company was substantially inactive until July, 2010. On July 31, 2010, we acquired intellectual property consisting of thirty-five (35) children’s songs to market and sell through distribution channels throughout the United States and foreign territories children’s intellectual properties, including original children’s music, videos and discs. Emphasis will be placed on creating original children’s music having a CD format that is personalized for the child’s individual name and download songs on the internet. In October, 2011, we leased offices in the Nashville, Tennessee area to expand our entertainment operations including, but not limited to, management of entertainers, producers of music and expansion of opportunities presented and determined by management viable for economic substance.
Going Concern
Our financial statements have been prepared on the basis of accounting principles applicable to a going concern. As a result, they do not include adjustments that would be necessary if we were unable to continue as a going concern and would therefore be obligated to realize assets and discharge our liabilities other than in the normal course of operations. As reflected in the accompanying financial statements, the Company is in the development stage with no revenues, has used cash flows in operations of ($210,923) from inception of June 2, 2008 to November 30, 2011 and has an accumulated deficit of ($438,600) through November 30, 2011.
This raises substantial doubt about our ability to continue as a going concern, as expressed by our auditors in its opinion on our financial statements included in this report. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan.
We have not yet established an ongoing source of revenues sufficient to cover our operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on us obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced to cease operations. There can be no assurance that we will operate at a profit or additional debt or equity financing will be available, or if available, can be obtained on satisfactory terms.
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Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an on-going basis, management evaluates these estimates and assumptions, including but not limited to those related to revenue recognition and the impairment of long-lived assets, goodwill and other intangible assets. Management bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Stock Compensation
(included in ASC 718 “Compensation-Stock Compensation”)
The Company adopted SFAS No. 123R, Share-Based Payment (“SFAS 123R”), which requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The Company accounts for stock-based compensation arrangements with nonemployees in accordance with the Emerging Issues Task Force Abstract No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. The Company records the expense of such services to employees and non employees based on the estimated fair value of the equity instrument using the Black-Scholes pricing model.
Revenue Recognition
(included in ASC 605 “Revenue Recognition”)
The Company recognizes revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements’ and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.
Product sales and shipping revenues, net of promotional discounts, rebates, and return allowances, are recorded when the products are shipped and title passes to customers. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery to the carrier. Return allowances, which reduce product revenue, are estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales taxes. Amounts received in advance for subscription services, are deferred and recognized as revenue over the subscription term.
Outlook
The most important metric by which we judge the Company’s performance now and in the near term is top line sales growth. Our current commitment to develop and deliver quality products means that, for the near future, bottom line profitability will be a poor indicator of our success.
Since investors are certain to be the primary, near term source of liquidity to support our development and marketing efforts, our liquidity will be driven by our ability to attract repeat investments from current shareholders and to find new ones. This in turn may be materially impacted by the general investment climate.
Our primary marketing challenge for the coming 12 months is to achieve market awareness from and through independent distributors to market our products including CDs, DVDs, web downloads (MP3 format) and client management currently under development. Additionally, management is seeking new acquisitions to complement existing products.
Revenues
These forward-looking statements, pertaining to revenues, are based on our management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. You should not rely upon these forward-looking statements as predictions of future events because we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. As our revenues commence, we plan to invest in marketing and sales by increasing the number of direct sales throughout our web portal to build brand awareness. We expect that in the future, marketing and sales expenses will increase in absolute dollars commencing in the fourth quarter of 2012. We do not expect our revenues to increase significantly until fourth quarter of 2012.
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General and Administrative Expenses
We expect that general and administrative expenses associated with executive compensation will increase in the future. Although our current president, chief financial officer and directors have foregone full salary payments during the initial stages of the business plan, we anticipate commencing revenues in the fourth quarter of 2012. In addition, we believe in the 2012 fiscal year that the compensation packages required to attract the senior executives the Company requires to execute against its business plan will increase our total general and administrative expenses.
Summary of Condensed Results of Operations
Any measurement and comparison of revenues and expenses from continuing operations should not be considered necessarily indicative or interpolated as the trend to forecast our future revenues and results of operations.
Results for the Three Months Ended November 30, 2011 and 2010
Revenues. The Company’s revenues for the three months ended November 30, 2011 and 2010 were $0 and $0 respectively. Additionally, the Company has not had any revenues from inception (June 2, 2008) to November 30, 2011.
Legal and Accounting Expenses. Legal and Accounting expenses for the three months ended November 30, 2011 were $6,500 as compared to $2,100 for the three months ended November 30, 2010. The increase of $4,400 was substantially due to the Company entering into entertainment management and these increased costs are expected to remain constant.
General and Administrative Expenses. General and administrative expenses for the three months ended November 30, 2011 and 2010 were $2,800 and $1,500 respectively. The increase costs are to maintain current filings as mandated with the Securities and Exchange Commission.
Net Loss. Net loss for the three months ended November 30, 2011 was ($13,300) as compared to a loss of ($3,600) for the three months ended November 30, 2010. The increase of net loss for the three months ending November 30, 2011 is typical for a development stage company commencing to engage in active development and operations and is recurring in nature. As the company develops its business plan, the net losses could increase substantially.
Impact of Inflation
We believe that the rate of inflation has had negligible effect on our operations. We believe we can absorb most, if not all, increased non-controlled operating costs by increasing sales prices, whenever deemed necessary and by operating our Company in the most efficient manner possible.
Liquidity and Capital Resources
The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. Since its inception, the Company has been funded by its related parties including our Company’s sole officer and director.
As of November 30, 2011, total current assets were $100.
As of November 30, 2011, total current liabilities were $29,300 which consisted of $5,123 of accrued expenses and $24,177 of loans from related parties. We had net working capital deficit at November 30, 2011 of ($29,200) as compared to net working deficit capital of ($10,300) at August 31, 2011.
During the three months ended November 30, 2011, operating activities used cash of $23,777.
Material Commitments
Except for the lease entered into on October 1, 2011 (see footnote No. 9), the Company does not have any material commitments as of November 30, 2011.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or any anticipate entering into any off-balance arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Recent Accounting Pronouncements
The company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are not subject to risks related to foreign currency exchange rate fluctuations. Our functional currency is the United States dollar. We do not transact our business in other currencies. As a result, we are not subject to exposure from movements in foreign currency exchange rates. We do not use derivative financial instruments for speculative trading purposes.
Item 4T. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Treasurer, as appropriate, to allow timely decisions regarding required disclosures.
In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our President and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of our first fiscal quarter covered by this report. Based on the foregoing, our President and Treasurer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
There has been no change in our internal controls over financial reporting during our first fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceeding.
None.
Item 1A. Risk Factors.
There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended August 31, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None (for the three months ended November 30, 2011).
Item 3. Defaults Upon Senior Securities.
None.
Item 4. (Removed and Reserved).
Item 5. Other Information.
None.
Item 6. Exhibits
(a) Exhibits
Exhibit No. | Description |
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Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer | |
Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting and Financial Officer | |
Section 1350 Certification of Principal Executive Officer | |
Section 1350 Certification of Principal Accounting and Financial Officer | |
101 * | XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q. |
* In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| SOUND KITCHEN ENTERTAINMENT GROUP, INC. |
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DATE: December 20, 2011 | By: | /s/ Russ Regan |
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| Russ Regan |
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| President and Principal Executive Officer |
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